ARTICLES & UPDATES

In the economic section of Al-Gura’a newspaper on Sunday, November 19, 2023, it was reported that
a judicial ruling mandated a joint-stock company to submit required documents to the Capital Market
Authority. The newspaper noted that the company’s failure to adhere to regulatory instructions had
significant administrative consequences, adversely affecting the company and its shareholders. The
report also mentioned that a shareholder, pursuing a claim, sought compensation. The newspaper
highlighted that this judicial ruling paves the way for compensating shareholders in non-compliant
companies.
Undoubtedly, any form of error, intentional or unintentional, resulting in harm requires compensation.
Failure to provide requested data, to the regulatory authority constitutes an administrative error under
company law. Additionally, refraining from any action that is detrimental to the financial and moral
interests of the company necessitates compensation for such violation, according to Article (179),
paragraph 4 of the Company Law. It’s worth noting that not only does non-compliance with regulatory
instructions impose liability on the board of directors, but the liability arises for all acts of fraud,
misuse of authority, and any violation of the law or the company’s contract, as well as errors in
management. This liability remains even if the general assembly of shareholders clears the board of
directors of its liability.
The responsibility can either be personal, attached to the individual who committed the violation or
error or shared among all members of the board of directors. They shall be jointly liable for paying the
compensation, except for those who object to the decision establishing the responsibility and formally
record their objection in the minutes.
It is noteworthy that the violations mentioned in the judgment, despite being related to
non-compliance with the regulatory authority’s instructions regarding specific data submission, may
involve serious offences that could escalate to the level of fraud and embezzlement. If there are
company assets registered under someone else’s name rather than the company’s, this could constitute
more severe crimes punishable under criminal law.
In reality, there are several prohibitions on the chairman and members of the board of directors of a
joint-stock company. It is not permissible for any of them to exploit the information received by virtue
of their position to gain benefits for themselves or others. Disclosure of the company’s secrets to
shareholders outside of general assembly meetings or to third parties is also prohibited. Failure to
comply with these restrictions warrants their removal and accountability for compensating the
damages resulting from such actions. They are not allowed to have a direct or indirect interest in
contracts and transactions entered into with the company, whether on its behalf for their account, or
the benefit of their spouses or second-degree relatives.
If any of the aforementioned violations occur, the company has the right to initiate a liability lawsuit
against the board of directors if these infractions or errors harm the company. If the company is in the
liquidation phase, the responsibility to file the lawsuit lies with the liquidator. Failure by the company
to take action allows each shareholder to individually file a liability lawsuit, representing the
company’s interests and their own. This legal action seeks compensation for damages resulting from
the identified errors. It’s important to note that any contractual clause within the company that
attempts to restrict this right is considered invalid, and the shareholder is not deprived of the right to
file such lawsuits.
This liability lawsuit expires five years from the date the board is absolved of responsibility by the
general assembly unless the actions attributed to the board members constitute a criminal offence. In
such cases, the lawsuit only expires with the expiration of the criminal lawsuit.

Lawyer / Abdulrazzaq Abdullah
E-mail: azq@aaplf.com